Auto component companies put $2 billion investments on hold

September 9, 2019 — INDOLINK Consulting (es)

Source: The Economic Times, Sept 09, 2019

NEW DELHI: The slowdown has forced the Indian auto component industry to hold at least $2 billion (about Rs 14,330 crore) investment planned for this year, said Deepak Jain, the recently appointed president of the Automotive Component Manufacturers Association.

Jain said investments in capacity expansion have been put on hold but the industry is still doing certain investments in innovation. He said the industry has invested about Rs 90,000-110,000 crore in switchover to the more stringent BS-VI emission norms, which will come into effect from April 1, 2020, and that of this amount the auto component industry has invested about Rs 30,000 crore.

“If we talk about a $57 billion dollar auto component industry, usually the investment ratio is close to 1:3 or 1:4, so to generate additional revenue, considering we grew at about 14% last year, this investment could be $2 billion that has been put on hold,” Jain told ET in an exclusive interview.

Capacity utilisation has come down to 50-60% from 75-80% in normal situations, said Jain. This has already resulted in a loss of around 100,000 jobs, he said. “I want to clarify here that in September 2018, we were almost running peak. We were growing at a very healthy double-digit (rate). In the manufacturing sector, going to peak capacities, even to hit 90% all the companies start to expand capacity. So we did expand,” said Jain. “We have run from 100 base threshold to 120, but unfortunately demand subsided and that 100 became 80. So we are looking at probably 50-60% capacity utilisation and 40% is underutilised.”

Echoing the sentiment, leading auto component maker JBM also said that investment has been put on hold. “We have put all investment in capacity expansion on hold as the demand has squeezed and we are cutting shifts and readjusting production,” said Nishant Arya, executive director, JBM Group.

Several other companies, including Shriram Pistons & Rings, have also shelved their investment plans.

Jain blamed the development on factors such as implementation of new safety norms, which added to the total cost of vehicle ownership, and structural changes in the economy which squeezed liquidity. The Indian auto component industry contributes 2.3% to the country’s GDP and employs about five million people.